Fiscal Policy

Output gaps in selected countries: 1980-2003

Output gaps in selected countries: 1980-2003 UK

Output gaps in selected countries: 1980-2003 USA UK

Output gaps in selected countries: 1980-2003 USA UK Germany

Output gaps in selected countries: 1980-2003 USA UK Germany Japan

The business cycle National output Time Potential output Actual output

The business cycle National output Time Potential output 3 4 2 Actual 1 2 3 4 National output Actual output 3 4 2 1 O Time

Fiscal Policy

Stabilisation policies If Ye < Yf, there is a danger of Keynesian unemployment The authorities should increase aggregate demand by adopting an expansonary fiscal policy by increasing government expenditure (G > 0) or decreasing taxes (T < 0)

Stabilisation policies If Ye > Yf, there is a danger of the economy overheating and inflation may increase The authorities should reduce aggregate demand by adopting a contractionary fiscal policy by reducing government expenditure (G < 0) or increasing taxes (T > 0)

The deflationary gap Y E O Ye YF Y

The deflationary gap Y E a Deflationary gap b O Ye YF Y

The deflationary gap Y E Injections Leakages Y a b Deflationary gap c YF Y

The inflationary gap Y E O Ye Y

The inflationary gap Y E O Ye Y

The inflationary gap Y E e Inflationary gap f O YF Ye Y

The inflationary gap Y E Leakages Injections Y e f Inflationary gap g YF Ye Y

Real and Money GDP